Mexico Grows Less Than Forecast Reinforcing Rate Cut Outlook

Mexican gross domestic product in the first three months of the year rose 0.8 percent from the year-ago period, less than the 1.1 percent median estimate in a Bloomberg survey of 18 economists. Photographer: Susana Gonzalez/Bloomberg

May 17 (Bloomberg) -- Mexico’s economy grew less than
analysts expected in the first quarter, fueling bets policy
makers will cut interest rates again this year.

Gross domestic product in the first three months of the
year rose 0.8 percent from the year-ago period, less than the
1.1 percent median estimate in a Bloomberg survey of 18
economists. GDP grew 0.5 percent from the previous quarter, an
annualized rate of 1.83 percent. The median estimate from seven
analysts surveyed by Bloomberg was for a 0.3 percent gain.

The economy is growing at its slowest pace since GDP
contracted 6.2 percent in 2009 in the aftermath of Lehman
Brothers Holdings Inc.’s collapse. Today’s report showing
industrial output is contracting increases the probability
policy makers will cut rates as soon as July, said Gabriel
Casillas, chief economist and head of research at Grupo
Financiero Banorte SAB.

“It’s a very low growth figure and shows the economy is
decelerating,” Casillas, who is based in Mexico City, said in a
telephone interview. Mexico was hurt by “the slowdown in
manufacturing of the U.S. that started in the fourth quarter of
last year.”

Swap Rates

Six-month interest-rate swaps, which reflect traders’
expectations of monetary policy, fell two basis points, or 0.02
percentage point, to a record-low 4.16 percent at 9:10 a.m. The
swaps show traders assign a 72 percent probability that Banco de
Mexico will cut rates by October. On May 3, traders saw a 32
percent chance of lower borrowing costs next semester.

The central bank unexpectedly cut its key rate by half a
point to 4 percent on March 8, the first reduction in more than
three years. The key rate was kept unchanged in April as
inflation climbed above the central bank’s target range.

Banorte, Grupo Financiero BBVA Bancomer SA and HSBC
Holdings Plc began forecasting this year’s second rate cut after
central bank Governor Agustin Carstens said on May 8 that
inflation will fall within the bank’s target range in the second
half and downside risks to the economy persist.

Growth Forecasts

The peso weakened 0.5 percent to 12.3347 per dollar and has
rallied 4.3 percent this year, the most among 16 major
currencies tracked by Bloomberg. Yields on Mexican government
notes due in 2024 fell one basis point to 4.61 percent.

Analysts have cut their forecasts for growth this year in
each of the past three monthly surveys by the central bank,
reducing the average estimate to 3.35 percent from 3.55 percent.

Activity in industrial sectors such as mining, construction
and industrial manufacturing contracted 1.5 percent in the
January to March period from a year earlier.

U.S. Economy

The U.S., which buys about 80 percent of Mexico’s exports,
grew an annualized 2.5 percent in the first quarter, less than
the 3 percent forecast by analysts, and signs of weakness have
persisted. Housing starts slumped to a five-month low in April
and industrial production fell in the same month by the most
since August.

Mexican companies on the stock exchange reported first-quarter sales of 62 billion pesos ($5 billion), 1.8 percent less
than analysts’ estimates, according to data compiled by
Bloomberg. That was the worst performance since April-through-June 2010, when revenue was 3.76 percent less than forecast.

Disappointing

Three of the four most disappointing results were
homebuilders, as a shift in government policy to promote more
capital-intensive apartment construction in urban areas over
single-family homes in commuter towns depleted the companies’
cash. Urbi Desarrollos Urbanos SAB and Corp. Geo SAB missed debt
payments as revenue fell short of analysts forecast in the first
quarter.